H&P Preview: Doane Sees Farrowing Intentions Below Year-Ago

Posted on 03/09/2017 10:20 AM

The table below summarizes Doane's pre-report estimates for USDA's Quarterly Hogs & Pigs Report to be released Friday at 2:00 p.m. CDT.

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As the chart below shows, this latest figure will almost surely mark a modern record for the September hog population, although the 1% annual increase isn't particularly large. Just for perspective's sake, also keep in mind that current numbers are still far below the stunning spike high, at 83.7 million head, reached in December 1944 (obviously in the midst of WWII). Totals for other times of the year weren't reported until much later. This latest figure is at least partially based on the June total, but given the fact that summer kills generally ran about 1% above expectations, we should probably expect an upward revision to the winter pig crop and the March numbers. The June numbers may not change much.

hogs1_sept2016a

I estimate summer farrowings at 2.965 million head, which would be slightly larger than the 2.949 million total intentions figure stated on the June report. The larger figure reflects ideas that the spring total will be revised at least modestly higher. Market observers should also recall that the hog market performed quite well into late June, before suffering its sustained summer decline, which suggests producers didn't have time to cut back on breeding operations and curtail farrowings before the end of the June-August quarter. My estimate still rounds down to 2% under year-ago.

hogs2_sept2016b

The chart above plots the quarterly farrowing totals and the percent annual change in those numbers. Note that the 2% annual difference looks quite small compared to the changes seen since late 2013. Indeed, while the (red) asterisks representing my farrowing intentions estimates for the fall and winter quarters look quite low by recent standards, the percentage figures on the left-hand axis (blue line and asterisks) would be even smaller than that expected for the summer result. Of course, much depends upon hog prices, but given the sustained drop seen this summer, as well as the bearishness recently dominating the market, further cutbacks certainly seem to be in the offing.

When combined with a pigs per litter estimate (10.50, up 1.1%) very much in keeping with the long-term upward trend, these figures point to a summer pig crop at 31.130 million head, which would mark a 0.7% annual reduction; the total rounds down to 99% of last year.

Hog slaughter during the first four weeks of September averaged almost 4% over year-ago levels, due largely to last week's massive 8.0% annual increase. This is a major reason I estimate the supply of pigs weighing 180 pounds and over at 104% of the September 2015 total. That implies similar increases into early October. However, the USDA probably didn't miss its summer population estimates all that badly, thereby implying the number of lighter pigs won't show such large increases. Thus, I expect the number of pigs in the 120-179 pound and 50-119 pound categories at 102% and 101% over year-ago levels, respectively. I expect the number of piglets weighing less than 50 pounds to dip in concert with the reduced pig crop, coming in at 99% of last year.

Hog slaughter may run 4% over year-ago levels in early October, but the annualized increased should dip back to approximately 2% over comparable 2015 levels through the balance of the month and through early November. These data also suggest late autumn kills will average only about 1% over year-ago. The lightest category and the summer pig crop suggest winter kills, probably after January 1, will run about 1% under year-ago.

When the reduced farrowing intentions figures are combined with the long-term upward trend in litter sizes, they suggest spring 2017 hog supplies will generally fall slightly below those of early 2016, then match or slightly exceed this year's rates next summer. Of course, much could change between now and then, especially if late-2016 events prove as bearish as many fear.

The industry will very likely pay the most attention to the percentage changes in the two middleweight categories in the market hog breakdown, since those will represent the best forecasts for late-fall and early-winter hog supplies. If those are stated more than 2% over September 2015 totals, expect the market to react badly, since such relatively large numbers would strongly suggest late-2016 hog supplies will swamp packing industry capacity and send prices drastically lower.

 

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